The economy went into reverse gear again in the last quarter of 2020, with GDP dropping 1%, according to Statistics New Zealand.
The fall is somewhat bigger than had been expected, although economists had warned that a number of outcomes were possible.
The latest drop means that, according to Stats NZ, GDP declined 2.9% over the year to December 2020, the largest annual fall ever in GDP for New Zealand - as a result of the lockdown.
The figure that the economists look at closely is the latest quarter compared with the same quarter the previous year. On that basis, economic activity was 0.9% lower in December 2020 compared with December 2019.
One feature in the latest GDP figures was a fairly large (8.7%) fall (from very high levels) of the construction sector.
Kiwibank chief economist Jarrod Kerr said the fall in construction over the quarter "was much deeper than expected".
"Most of the pullback in construction can be attributed as a ‘payback’ of sorts from the spike in the third quarter. Commerical construction was particularly weak, although residential construction was up over the quarter."
The latest GDP drop opens up the likely possibility that New Zealand may see a 'double dip' recession, as the March 2021 quarter is likely to record the worst impacts of there being virtually no overseas tourists here this summer. The technical description of a recession is two consecutive quarters of negative GDP growth. Of course, we went into recession last year after falls in GDP for both the March and June 2020 quarters.
Capital Economics Australia & New Zealand economist Ben Udy said the decline in activity in the fourth quarter "reflects the fading of pent up demand and means that New Zealand a second recession is imminent as GDP is bound to decline in Q1".
"GDP is set to decline again in the first quarter of this year. Electronic card transactions fell in January and February. And the week-long lockdown in Auckland in March means a decline in consumption is all but confirmed. Similarly, the New Zealand activity index eased in both January and February."
Udy says further ahead, high house prices and rising business confidence should result in a sustained rebound in investment. "...Overall, we’ve pencilled in a solid 5% rise in GDP in 2021."
ASB chief economist Nick Tuffley and senior economist Jane Turner said fourth-quarter GDP "was much weaker than expected".
ASB had forecast a -0.1% decline.
"Q4 GDP is 0.9% below year-ago levels, also much weaker than expected. The RBNZ was expecting Q4 GDP to remain up 0.3% on year-ago levels," Tuffley and Turner said.
'Questions on performance'
"The extent of the Q4 fall raises questions around the true extent of NZ’s economic performance through the pandemic, but also raises questions over how strong [first half] 2021 growth will be. The absence of foreign tourists is having a greater negative impact on GDP than previously estimated, compounded by the possibility of capacity constraints holding back the stronger parts of the economy (i.e. construction). The implications are mixed, as some sectors are constrained by weak demand but others may be constrained by supply."
For the December quarter 2020 the Reserve Bank had forecast a quarterly figure of exactly 0.0%, while major bank economists were split between those seeing a small drop in economic activity and those who felt there would be a small rise.
The latest GDP figure follows a massive, record, 13.9% (revised down from 14%) rise in GDP in September as the economy bounced back hugely from the 11% fall - lockdown induced in June.
Stats NZ national accounts senior manager Paul Pascoe said activity in the December quarter shows "a mixed picture"
"Some industries are down, but others have held up or risen, despite the ongoing impact of Covid.”
In terms of industry groups, seven out of 16 industries had declines in activity.
"The two largest contributors to the drop were construction, and retail trade and accommodation. Both industries saw strong September 2020 quarter results," Pascoe said.
“Falls in construction services, commercial building, and infrastructure were partially offset by continued growth in residential building activity. Construction activity remains at historically high levels, despite this quarter’s fall.”
On the other hand, parts of the retail trade and accommodation industry continue to be affected by the absence of international tourism.
“Businesses ranging from hotels and motels, to restaurants, cafes and bars faced much lower activity in calendar year 2020 than in 2019, with far fewer international tourists in the country because of border restrictions,” Pascoe said.
The two largest positive contributors in the quarter were transport, postal and warehousing, and business services. However, both industries are still operating below pre-Covid levels and are weaker over the calendar year 2020 compared to 2019. Transport services, in particular, have been impacted by the lack of international travel.
The December 2020 quarter results capture the beginning of what is traditionally the international tourism season, which has tended to peak during the summer months.